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Inflation drawing on a chalk board

Inflation Like You’ve Never Seen

John Russell April 13, 2022

Well, at least like a lot of people have never seen. If forty years make a generation, then anybody under the age of 42 or 43 has never experienced inflation this high. The Labor Department has issued a report that US consumer prices soared 8.5% in March, 2022 from a year earlier for the fastest annual growth since 1981.

Gasoline prices are the biggest reason, shooting up 48%, which makes up half of the increase. Speculators might switch from recommending investing in crypto currency to buying up boxes of Cocoa Puffs and Lucky Charms. Breakfast cereal prices are up 9.2%. But other grocery items are even costlier. Meat prices have increased 14.8%. For those planning a fancy location wedding this summer, the costs for men’s jackets, suits, and coats were up 14.5% for the year, and airline fares gained 10.7% in just the last month.

Popular entertainment back in 1981 included horror movies like “American Werewolf in London,” and “Halloween II.” (They were only on the second “Halloween” movie in 1981?). But the top grossing movies at that time were exciting, but hopeful adventures, like “Raiders of the Lost Ark,” or “Superman II.”

And while the current news about inflation seems more like a horror film, there is a little hopeful news. Used car prices, which have gone up 35% over the past year, fell from February to March. And “core CPI,” which subtracts volatile food and energy prices from the calculations, increased only 0.3% for the month vs. 0.5% as predicted. This “softer-than-projected” core CPI reading could indicate inflation growth has peaked in March.

If that’s true, then maybe we can finally sort things out the way a suspense/thriller movie like 1981’s “Absence of Malice” or “Eye of the Needle” resolves the plot twists in ways we didn’t see coming. In the summer of 2021, federal experts considered inflation a “transitory” outcome of Covid-related supply chain bottlenecks. But shortages persisted. Consumer demand remained high. Russia invaded Ukraine, wiping out a chunk of food and energy supplies. China locked down Shanghai, which provides critical components to US factories. What happens next? How will this “runaway” inflation start to slow down?

Unfortunately, inflation is something that usually must run its course. Trends that contribute to inflation eventually seem to adjust or go away. For example, supply chain problems that have gripped American commerce are likely to be smoothed out or eliminated by the businesses involved. When prices get too high, Americans will generally adjust to the inflationary trends and just spend less, helping to adjust the market demand. There is an old saying that is taught in Economics 101 — “the cure for high prices is high prices.”

Those who set economic policy in the Government might also intervene. The President announced a change in EPA regulation to allow for higher percentage ethanol-blended fuels to be sold in the U.S. to make gasoline more affordable. The Federal Reserve has been increasing interest rates to raise borrowing costs for consumers and businesses.

But even if all these hopeful concepts succeed, it may be years for price growth to return to the more conservative levels we’ve been used to the last 6 to 10 years.